A miss for the trade balance (extending the slide into bigger and bigger deficits), positive 'revisions' to rear-view mirror data on nominal GDP, a world of carry traders looking for a better exit point (or staring at margin calls), and more PR coverage of Abe's third arrow have created the perfect short-squeeze storm in Japanese stocks. While USDJPY managed to creep back above 98 (trading in a relatively modest 100 pip range), and JGBs rapidly recovered from early negative-correlated-to-equity-based losses to trade 1-2bps lower in yield, the broad Japanese equity market - TOPIX - is up almost 5%. This is it's best day since March 2011 and second-best day since Lehman. S&P futures are up a mere 2 points, Treasury futures are unchanged, and Gold is modestly higher. So simply put, Japanese stocks are on their own tonight in a land of Abe(g)nomics as every other asset (risk-on or risk-off) sits idly by.
Oops on the trade balance...
[6]
but that doesn't matter... but notice that each time realized volatility has exploded like this, the market has continued it downward trajectory - one reason is simply the VaR shock we have discussed in depth as risk budgets (or the margin hikes we have seen) force position reduction...
[7]
These large bounces are not unprecedented in this downturn - we have seen three ~30% retracements now...
[8]
Charts: Bloomberg